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Thursday, March 31, 2011

Bernanke to brief the pressFederal Reserve to join Bank of England and European Central Bank in holding monetary policy press conferences

Author: Claire Jones

Source: Central Banking | 25 Mar 2011

Categories: Monetary Policy

Topics: Federal Reserve, Bernanke, Greenspan, monetary policy

The Fed said on Thursday that the chairman will hold the quarterly briefings "to present the Federal Open Market Committee's (FOMC) current economic projections and to provide additional context for the FOMC's policy decisions".

The central bank added: "The introduction of regular press briefings is intended to further enhance the clarity and timeliness of the Federal Reserve's monetary policy communication."

The Fed has long come under fire for its opacity. Alan Greenspan, Bernanke's predecessor, was seen as particularly obfuscatory, with the man himself famously quipping: "If I turn out to be particularly clear, then you've probably misunderstood what I said." Bernanke has already been more proactive, appearing on the CBS television network's 60 Minutes show twice with mixed results.

There had been some indication that the FOMC was considering press briefings before Thursday's statement, with the January minutes stating that officials "noted the importance of fair and equal access by the public to information that could be informative about future policy decisions, and they considered approaches to address this issue".

The decision to hold the briefings comes at a time when the Fed is particularly unpopular with the American public.

Indicative of this was the decision made by the state legislature in Utah earlier this month to pass a bill that allowed gold and silver coins minted in the US to be used as legal tender. The bill, which is now awaiting the signature of the state's governor, was supported by lobby groups who believe that the central bank is eroding the value of the dollar.

"At one level, the Utah Senate's gold and silver tender law represents a curious sideshow event. But at another level, it is quite serious because it represents the American public's growing distrust and dissatisfaction with the Fed," Steve Hanke, a professor at Johns Hopkins University, told CentralBanking.com. "By trotting out the Fed's favourite inflation metric – the core personal consumption expenditures, which excludes food and energy items – and stating that the Fed is keeping the inflation rate well below the upper end of the target range, chairman Bernanke has lost his credibility."

Hanke added: "No American who spends a big chunk of their budget on food and gasoline believes a word that chairman Bernanke utters. In consequence, the chairman is less popular than the taxman."

However, the briefings may not be intended to sweeten the public mood. "The exercise is more about speaking to financial markets. It's more about transparency than goodwill," Lou Crandall, the chief economist at Wrightson ICAP, a research firm, told CentralBanking.com. Commentators note that at present it can be difficult to discern what the FOMC consensus view is, as those members that are furthest from it are usually the first to speak after rate votes. "The briefings will go some way to resolving one of the communication timing issues they have. The members that are least happy with the decision are the most likely to give their views before the minutes of the meeting are out."

The Bank of England's governor holds press briefings every quarter to mark the release of the Bank's Inflation Report. The meetings held around the time of the quarterly reports' release have become the focus for policy changes, with each of the expansions of the asset purchase programme taking place on these occasions. The European Central Bank (ECB) president, his deputy and, on occasion, a national central bank governor meet the press after each governing.

However, in other ways, the Fed is more transparent than both the ECB and the Bank.

It is the only one of the three to reveal how rate-setters voted straight after each meeting, with the Bank waiting three weeks until the publication of the minutes and the ECB not doing so at all. The Fed is also alone in publishing a full transcript of all its monetary policy meetings, albeit with a five-year delay.

In 2011, briefings will be held on April 27, June 22 and November 2. The briefings will be broadcast live on the Federal Reserve's website. For these meetings, the FOMC statement is expected to be released an hour and forty-five minutes earlier than for other FOMC meetings at 12:30 local time.

By Scott StewartOn March 19, military forces from the United States, France and Great Britain began to enforce U.N. Security Council Resolution 1973, which called for the establishment of a no-fly zone over Libya and authorized the countries involved in enforcing the zone to “take all necessary measures” to protect civilians and “civilian-populated areas under threat of attack.” Obviously, such military operations cannot be imposed against the will of a hostile nation without first removing the country’s ability to interfere with the no-fly zone — and removing this ability to resist requires strikes against military command-and-control centers, surface-to-air missile installations and military airfields. This means that the no-fly zone not only was a defensive measure to protect the rebels — it also required an attack upon the government of Libya.Certainly, Libyan leader Moammar Gadhafi has no doubt that the U.S. and European military operations against the Libyan military targets are attacks against his regime. He has specifically warned France and the United Kingdom that they would come to regret the intervention. Now, such threats could be construed to mean that should Gadhafi survive, he will seek to cut off the countries’ access to Libyan energy resources in the future. However, given Libya’s past use of terrorist strikes to lash out when attacked by Western powers, Gadhafi’s threats certainly raise the possibility that, desperate and hurting, he will once again return to terrorism as a means to seek retribution for the attacks against his regime. While threats of sanctions and retaliation have tempered Gadhafi’s use of terrorism in recent years, his fear may evaporate if he comes to believe he has nothing to lose.

History of Libyan Reactions

Throughout the early 1980s, the U.S. Navy contested Libya’s claim to the Gulf of Sidra and said the gulf was international water. This resulted in several minor skirmishes, such as the incident in August 1981 when U.S. Navy fighters downed two Libyan aircraft. Perhaps the most costly of these skirmishes for Libya occurred in March 1986, when a U.S. task force sank two Libyan ships and attacked a number of Libyan surface-to-air missile sites that had launched missiles at U.S. warplanes.The Libyans were enraged by the 1986 incident, but as the incident highlighted, they lacked the means to respond militarily due to the overwhelming superiority of U.S. forces. This prompted the Libyans to employ other means to seek revenge. Gadhafi had long seen himself as the successor to Gamal Abdel Nasser as the leader of Arab nationalism and sought to assert himself in a number of ways. Lacking the population and military of Egypt, or the finances of Saudi Arabia, he began to use terrorism and the support of terrorist groups as a way to undermine his rivals for power in the Arab world. Later, when he had been soundly rejected by the Arab world, he began to turn his attention to Africa, where he employed these same tools. They could also be used against what Gadhafi viewed as imperial powers.On April 2, 1986, a bomb tore a hole in the side of TWA Flight 840 as it was flying from Rome to Athens. The explosion killed four American passengers and injured several others. The attack was claimed by the Arab Revolutionary Cells but is believed to have been carried out by the Abu Nidal Organization (ANO), one of the Marxist terrorist groups heavily sponsored by Libya.On the evening of April 5, 1986, a bomb detonated in the La Belle disco in Berlin. Two U.S. soldiers and one civilian were killed in the blast and some 200 others were injured. Communications between Tripoli and the Libyan People’s Bureau (its embassy) in East Berlin were intercepted by the United States, which, armed with this smoking gun tying Libya to the La Belle attack, launched a retaliatory attack on Libya the night of April 15, 1986, that included a strike against Gadhafi’s residential compound and military headquarters at Bab Al Azizia, south of Tripoli. The strike narrowly missed killing Gadhafi, who had been warned of the impending attack. The warning was reportedly provided by either a Maltese or Italian politician, depending on which version of the story one hears.The Libyan government later claimed that the attack killed Gadhafi’s young daughter, but this was pure propaganda. It did, however, anger and humiliate Gadhafi, though he lacked the ability to respond militarily. In the wake of the attack on his compound, Gadhafi feared additional reprisals and began to exercise his terrorist hand far more carefully and in a manner to provide at least some degree of deniability. One way he did this was by using proxy groups to conduct his strikes, such as the ANO and the Japanese Red Army (JRA). It did not take Gadhafi’s forces long to respond. On the very night of the April 15 U.S. attack, U.S. Embassy communications officer William Calkins was shot and critically wounded in Khartoum, Sudan, by a Libyan revolutionary surrogates in Sudan. On April 25, Arthur Pollock, a communicator at the U.S. Embassy in Sanaa, was also shot and seriously wounded by an ANO gunman.In May 1986, the JRA attacked the U.S. Embassy in Jakarta, Indonesia, with an improvised mortar that caused little damage, and the JRA conducted similar ineffective attacks against the U.S. Embassy in Madrid in February and April of 1987. In June 1987, JRA operatives attacked the U.S. Embassy in Rome using vehicle-borne improvised explosive device and an improvised mortar. In April 1988, the group attacked the USO club in Naples. JRA bombmaker Yu Kikumura was arrested on the New Jersey Turnpike in April 1988 while en route to New York City to conduct a bombing attack there. The use of ANO and JRA surrogates provided Gadhafi with some plausible deniability for these attacks, but there is little doubt that he was behind them. Then on Dec. 21, 1988, Libyan agents operating in Malta succeeded in placing a bomb aboard Pan Am Flight 103, which was destroyed in the air over Scotland. All 259 passengers and crew members aboard that flight died, as did 11 residents of Lockerbie, Scotland, the town where the remnants of the Boeing 747 jumbo jet fell. Had the jet exploded over the North Atlantic as intended instead of over Scotland, the evidence that implicated Libya in the attack most likely never would have been found.But the United States has not been the only target of Libyan terrorism. While the Libyans were busy claiming the Gulf of Sidra during the 1980s, they were also quite involved in propagating a number of coups and civil wars in Africa. One civil war in which they became quite involved was in neighboring Chad. During their military intervention there, the Libyans suffered heavy losses and eventually defeat due to French intervention on the side of the Chadian government. Not having the military might to respond to France militarily, Gadhafi once again chose the veiled terrorist hand. On Sept. 19, 1989, UTA Flight 772 exploded shortly after taking off from N’Djamena, Chad, en route to Paris. All 156 passengers and 14 crew members were killed by the explosion. The French government investigation into the crash found that the aircraft went down as a result of a bombing and that the bomb had been placed aboard the aircraft in Brazzaville, the Republic of the Congo, by Congolese rebels working with the Libyan People’s Bureau there. Six Libyans were tried in absentia and convicted for their part in the attack.

The Current Situation

Today Libya finds itself once again being attacked by an opponent with an overwhelmingly powerful military that Gadhafi’s forces cannot stand up to. While Gadhafi did take responsibility for some of Libya’s past terrorist attacks and publicly renounced terrorism in 2003, this step was a purely pragmatic move on his part. It was not the result of some ideological epiphany that suddenly caused Gadhafi to become a kinder and gentler guy. From the late 1980s to the renunciation of terrorism in 2003, Gadhafi retained the capability to continue using terrorism as a foreign policy tool but simply chose not to. And this capability remains in his tool box.Unlike his views of past crises, Gadhafi sees the current attacks against him as being far more dangerous to the survival of his regime than the Gulf of Sidra skirmishes or the French military operations in Chad. Gadhafi has always been quite cold and calculating. He has not hesitated to use violence against those who have affronted him, even his own people. Now he is cornered and fearful for his very survival. Because of this, there is a very real possibility that the Libyans will employ terrorism against the members of the coalition now implementing and enforcing the no-fly zone.Gadhafi has a long history of using diplomatic staff, which the Libyans refer to as “revolutionary committees,” to conduct all sorts of skullduggery, from planning terrorist attacks to fomenting coups. Indeed, these diplomats have often served as agents for spreading Gadhafi’s revolutionary principles elsewhere. Because of this history, coalition members will almost certainly be carefully monitoring the activities of Libyan diplomats within their countries — and elsewhere.As illustrated by most of the above-mentioned terrorist attacks launched or commissioned by the Libyans, they have frequently conducted attacks against their targeted country in a third country. This process of monitoring Libyan diplomats will be greatly aided by the defection of a large number of diplomats in a variety of countries who undoubtedly have been thoroughly debriefed by security agencies looking for any hints that Gadhafi is looking to resume his practice of terrorism. These defectors will also prove helpful in identifying intelligence officers still loyal to Gadhafi and perhaps even in locating Libyan intelligence officers working under non-official cover.But diplomats are not the only source Gadhafi can tap for assistance. As noted above, Gadhafi has a long history of using proxies to conduct terrorist attacks. Using a proxy provides Gadhafi with the plausible deniability he requires to continue to spin his story to the world that he is an innocent victim of senseless aggression. Perhaps more important, hiding his hand can also help prevent reprisal attacks. While most of the 1980s-era Marxist proxy groups the Libyans worked with are defunct, Gadhafi does have other options.One option is to reach out to regional jihadist groups such as al Qaeda in the Islamic Maghreb (AQIM), while another is to cultivate already improving relationships with jihadists groups in Libya such as the Libyan Islamic Fighting Group (LIFG). Indeed, Gadhafi has released hundreds of LFIG members from prison, a process that continued even after the unrest began in February. It is doubtful that the LIFG really feels any affinity for Gadhafi — the group launched an insurgency against his regime in the mid-1990s and actually tried to assassinate him — but it could be used to funnel funds and weapons to regional groups like AQIM. Such groups certainly have no love for the French, Americans or British and might be willing to conduct attacks against their interests in exchange for weapons and funding from Libya. AQIM is desperate for resources and has been involved in kidnapping for ransom and drug smuggling to raise funds to continue its struggle. This need might help it overcome its disdain for Gadhafi.In the long run groups like AQIM and LIFG certainly would pose a threat to Gadhafi, but facing the very real existential threat from the overwhelming military force now being arrayed against him, Gadhafi may view the jihadist threat as far less pressing and severe.Other potential agents for Libyan terrorist attacks are the various African rebel and revolutionary groups Gadhafi has maintained contact with and even supported over the years. Many of the mercenaries that have reportedly fought on the side of the Libyan loyalist forces have come from such groups. It is not out of the realm of possibility that Gadhafi could call upon such allies to attack French, British, Italian or American interests in his allies’ respective countries. Such actors would have ready access to weapons (likely furnished by Libya to begin with), and the capabilities of host-country security services are quite limited in many African states. This would make them ideal places to conduct terrorist attacks. However, due to the limited capabilities exhibited by such groups, they would likely require direct Libyan oversight and guidance (the kind of direct Libyan guidance for African rebels demonstrated in the UTA Flight 772 bombing) if they were to conduct attacks against hardened targets in Africa such as foreign embassies.Also, as seen in the wake of al Qaeda in the Arabian Peninsula’s Christmas Day bomb plot in 2009, which originated in Ghana, passenger and cargo screening at African airports is not as stringent as it is elsewhere. When combined with Libya’s history of attacking aircraft, and placing bombs aboard foreign aircraft in third countries, the possibility of such an attack must surely be of grave concern for Western security officials.Terrorism, however, has its limitations, as shown by Gadhafi’s activities in the 1980s. While the Libyans were able to launch several successful terrorist strikes, kill hundreds of people and traumatize many more through terror multipliers like the media, they were not able to cause any sort of lasting impact on the foreign policies of the United States or France. The attacks only served to harden the resolve of those countries to impose their will on Gadhafi, and he eventually capitulated and renounced terrorism. Those Libyan-sponsored attacks in the 1980s are also an important factor governing the way the world views Gadhafi — and today they may be playing a large part in the decision made by countries like France that Gadhafi must go. Of course, it is also this attitude — that Gadhafi must be forced out — that could lead him to believe he has nothing to lose by playing the terrorism card once again.

Monday, March 21, 2011

I recently was invited to attend a conference on "Interpreting the Great Depression". It was put on by The Liberty Fund http://www.libertyfund.org/ . It was very pleasant and I was invited by Arnold Kling. Below Arnold writes some of the event's highlights.

Sunday, March 20, 2011

Saturday, March 19, 2011

I recently went to Los Angeles as an invited participant/speaker at a conference on the Great Depression. The conference was over Sunday March 13 and rather than fly right home, I decided to stay an extra day and go to Santa Anita Park. It was beautiful and for once I walked out of the track a winner! I went with the Class of 1997 ECU Econ Alumni Hall of Fame member Phil McPherson who resides in Newport Beach, CA. From the top left:

1. I saw my brother again who asked me for $50 bucks.2. Me at the gates of Santa Anita Park.3. Class of 1997 ECU Econ Hall of Fame Member Phil McPherson studying the form.4. Horse racing Icon "Jimmie the Hat" walked right by me. I yelled at him and took his picture.5. A short video on the beauty of Santa Anita.

Friday, March 18, 2011

Here is why "The Hammer" is wrong. I hope I never have to say that again....

Let me try it from this angle...suppose today the government wanted to spend $500 for defense, entitlements et. al. and social security wanted to spend $500 today and $500 25 years from now. One way to finance this would be to raise $500 in general revenue through income taxes now and $500 in social security taxes now and then $500 in 25 years from social security taxes. Your tax bill (without compounding) would be $1500 total as the tax-paying public. Now suppose that the government wanted to spend $500 today and social security wanted to spend $500 today and $500 in 25 years but social security had $1000 in total revenue sitting right there, now, on their balance sheet. One thing that could be done is for social security to spend the $500 now and loan the government $500 now to pay for their spending. Look at what has now happened...you no longer have to pay the income tax bill of $500 for the general government spending since an intra-governmental transfer happened. Then in 25 years the government would raise $500 in income taxes to pay social security what it is owed. But look at the net result...in both cases your tax bill was $1500. So from the point of view of the tax-paying public...it is the net public debt that really matters. And it is not an empty lock box.

Who could blame people for holding back when we see roughly 50 million Americans on one or more taxpayer-supported programs, be it food stamps or unemployment benefits? This downturn may not have the 1930s feel of despair, but in large part that is because, as the economist David Rosenberg of the wealth-management firm Gluskin Sheff put it, "The modern day soup line is a check in the mail."

Thursday, March 10, 2011

This is from ECU Economics Alumni Hall of fame and Wall of fame member Caleb Jones. Click on the link and then watch the short video. It's funny and a glimpse for all you undergrads of what living the dream is all about.

Monday, March 7, 2011

Virginia Republican delegate Bob Marshall proposed the attached legislation and it died in committee. Give the guy credit...he is thinking ahead. The upshot is he wants a state-issued currency backed by gold to compete with the US dollar and be ready to take over in the "likely event" (his words) a hyperinflation destroys the Fed as an institution and the dollar as a viable legal tender.

Everything King Midas touched turned to gold...including his lovely daughter.

Sunday, March 6, 2011

Every year I go down to New Orleans to go duck hunting and enjoy the city for a few days. Of course I can not seem to ever resist the urge to go to the track. Seeing how North Carolina has no horse racing at all, it is a treat when I can get out of town and go. I left NC at 6 am to get to New Orleans at 9 am to start the fun. The top picture is the simulcast room at the Fairgrounds, which is the track in New Orleans, at 12 noon. Note the TVs with racing on from all over the country. And note also the drunks and the degenerate gamblers. The second picture is of a dude who would come to me and every one else who would listen to him after each race and tell us "Hey, I hit the superfecta that race! You have the super?" One of his buddies came over to me and said "don't pay him no mind, he does this all the time." I said "No problem. But does your buddy know Marshall Gramm?" Lastly, there is a picture of my brother all tanked up at 12 noon. I had not seen him in years. I did not have the heart to wake him.

About Me

I am a Professor of Economics at East Carolina University in Greenville, NC.
My research focuses on macroeconomics and economic history in general and the economics of the Great Depression in particular. I have authored two books, Reflections on the Great Depression and The Economics of the Great Depression: A Twenty-First Century Look Back at the Economics of the Interwar Era and edited The Seminal Works of the Great Depression. I am currently working on my fourth book Interwar Historical Antecedents of Modern Inflation Targeting and I am the co-editor (with Robert Whaples) of The Handbook of Major Events in Economic History and The Handbook of Modern Economic History.
I have also traveled the country giving speeches on the state of the macroeconomy and other economic issues to many trade and business associations. When I am not thinking about the economy I am either chasing ducks, handicapping horses or arranging a fine dining experience.
Lastly, the opinions expressed on this blog are mine alone and do not reflect upon East Carolina University in any manner or way, in whole or in part, now and forever more under the canopy of heaven.